ZARA - fivesenseseducation.com.au · ZARA A BUSINESS CASE STUDY Sharyn Owen ZARA A BUSINESS CASE...

Sharyn Owen

ZARAA BUSINESS CASE STUDY Sharyn Owen

ZARAA BUSINESS CASE STUDY

SAMPLE

2017

06

23

DEDICATIONThis book is for Holly

About the Author

Sharyn Owen is a retired teacher who has spent the last 13 years teaching Business Studies at Independent Schools in NSW. Her most recent role was the Lead Business Studies Teacher at Arden Anglican School in Epping. Before beginning her second career, Sharyn was a Chartered Accountant working in both public practice and industry. She held a number of Senior Finance positions within ASX listed telecommunication companies.

Due to ill health, Sharyn retired from teaching during 2016 and passed away in November that year.

Five Senses Education Pty Ltd2/195 Prospect HighwaySeven Hills 2147New South WalesAustralia

Zara – A Business Case Study ISBN 978-1-76032-194-9

Copyright ©Five Senses Education 2017

All rights reserved. Except under the conditions describedin the Copyright Act 1968 of Australia and subsequentamendments, no part of this publication may be reproducedstored in retrieval system or transmitted in any form or byany means electronic, mechanical, photocopying, recording orotherwise, without the prior permission of the copyright owner.

DisclaimerThe views expressed in this book do not necessarily represent the views of Inditex, Zara or any other business referred to. Zara is part of a rapidly changing industry and it is likely that information correct at the time of publishing may become out of date and inaccurate over time. The author has relied on her own research for the accuracy of the information used. Information about recent developments at Inditex or Zara can be obtained through their corporate website at www.inditex.com

Every care has been taken to acknowledge copyright. The author apologises for any accidental infringement which has proved untraceable and would be pleased to come to a suitable agreement with the rightful owner in each case.

2017 06 23

DEDICATIONThis book is for Holly

About the Author

Sharyn Owen is a retired teacher who has spent the last 13 years teaching Business Studies at Independent Schools in NSW. Her most recent role was the Lead Business Studies Teacher at Arden Anglican School in Epping. Before beginning her second career, Sharyn was a Chartered Accountant working in both public practice and industry. She held a number of Senior Finance positions within ASX listed telecommunication companies.

Due to ill health, Sharyn retired from teaching during 2016 and passed away in November that year.

Five Senses Education Pty Ltd2/195 Prospect HighwaySeven Hills 2147New South WalesAustralia

Zara – A Business Case Study ISBN 978-1-76032-194-9

Copyright ©Five Senses Education 2017

All rights reserved. Except under the conditions describedin the Copyright Act 1968 of Australia and subsequentamendments, no part of this publication may be reproducedstored in retrieval system or transmitted in any form or byany means electronic, mechanical, photocopying, recording orotherwise, without the prior permission of the copyright owner.

DisclaimerThe views expressed in this book do not necessarily represent the views of Inditex, Zara or any other business referred to. Zara is part of a rapidly changing industry and it is likely that information correct at the time of publishing may become out of date and inaccurate over time. The author has relied on her own research for the accuracy of the information used. Information about recent developments at Inditex or Zara can be obtained through their corporate website at www.inditex.com

Every care has been taken to acknowledge copyright. The author apologises for any accidental infringement which has proved untraceable and would be pleased to come to a suitable agreement with the rightful owner in each case.

SAMPLE

Zara Business Case Study

This book is subject to Copyright. No more than 10% is permitted to be photocopied. © Sharyn Owen 2016 iv

TABLE OF CONTENTS 1.0 Introduction ......................................................................................................................... 1

2.0 Operations ........................................................................................................................... 3 2.1 Role of Operations Management ..................................................................................................... 3

2.1.1 Strategic Role of Operations Management ................................................................................ 3 2.1.2 Goods and/or services ................................................................................................................ 3 2.1.3 Interdependence with other key business functions .................................................................. 3

2.2 Influences on Operations .................................................................................................................. 4 2.2.1 General Influences ...................................................................................................................... 4 2.2.2 Corporate Social Responsibility (CSR) ......................................................................................... 5

2.3 Operations Processes ........................................................................................................................ 6 2.3.1 Inputs .......................................................................................................................................... 7 2.3.2 Transformation Processes .......................................................................................................... 8 2.3.3 Outputs ..................................................................................................................................... 10

2.4 Operations Strategies ..................................................................................................................... 10 2.4.1 Performance Objectives ............................................................................................................ 10 2.4.2 New product design and development ..................................................................................... 12 2.4.3 Supply Chain Management ...................................................................................................... 12 2.4.4 Outsourcing .............................................................................................................................. 15 2.4.5 Technology ............................................................................................................................... 15 2.4.6 Inventory Management ............................................................................................................ 16 2.4.7 Quality Management ............................................................................................................... 17 2.4.8 Global factors ........................................................................................................................... 17

3.0 Marketing .......................................................................................................................... 19 3.1 Role of Marketing ........................................................................................................................... 19

3.1.2 Interdependence with other key business functions ................................................................ 19 3.1.3 Production, Selling and Marketing Approaches ....................................................................... 20 3.1.4 Types of markets ...................................................................................................................... 20

3.2 Influences on Marketing ................................................................................................................. 21 3.2.1 Consumer Choice ...................................................................................................................... 21 3.2.2 Consumer Laws ......................................................................................................................... 21 3.2.3 Ethical Aspects .......................................................................................................................... 22

3.3 Marketing Processes ....................................................................................................................... 22 3.3.1 Situational analysis ................................................................................................................... 23 3.3.2 Market Research ...................................................................................................................... 24 3.3.3 Establishing Marketing Objectives ........................................................................................... 24 3.3.4 Identifying Target markets ....................................................................................................... 25 3.3.5 Developing Marketing Strategies ............................................................................................. 25 3.3.6 Implementation, Monitoring and Controlling .......................................................................... 25

3.4 Marketing Strategies ....................................................................................................................... 26 3.4.1 Market segmentation, Product/service differentiation and positioning .................................. 26 3.4.2 Product incl. branding and packaging ...................................................................................... 26 3.4.3 Price incl. methods, strategies and quality interaction ............................................................ 28 3.4.4 Promotion incl. mix and communication .................................................................................. 29 3.4.5 Place/ distribution incl. channels and choice plus physical distribution issues ........................ 30 5.4.6 People, processes and physical evidence.................................................................................. 31 5.4.7 E-marketing .............................................................................................................................. 31 3.4.8 Global marketing ...................................................................................................................... 32

3.5 Summary on Marketing .................................................................................................................. 35


This book is subject to Copyright. No more than 10% is permitted to be photocopied. © Sharyn Owen 2016 iv

TABLE OF CONTENTS 1.0 Introduction ......................................................................................................................... 1

2.0 Operations ........................................................................................................................... 3 2.1 Role of Operations Management ..................................................................................................... 3

2.1.1 Strategic Role of Operations Management ................................................................................ 3 2.1.2 Goods and/or services ................................................................................................................ 3 2.1.3 Interdependence with other key business functions .................................................................. 3

2.2 Influences on Operations .................................................................................................................. 4 2.2.1 General Influences ...................................................................................................................... 4 2.2.2 Corporate Social Responsibility (CSR) ......................................................................................... 5

2.3 Operations Processes ........................................................................................................................ 6 2.3.1 Inputs .......................................................................................................................................... 7 2.3.2 Transformation Processes .......................................................................................................... 8 2.3.3 Outputs ..................................................................................................................................... 10

2.4 Operations Strategies ..................................................................................................................... 10 2.4.1 Performance Objectives ............................................................................................................ 10 2.4.2 New product design and development ..................................................................................... 12 2.4.3 Supply Chain Management ...................................................................................................... 12 2.4.4 Outsourcing .............................................................................................................................. 15 2.4.5 Technology ............................................................................................................................... 15 2.4.6 Inventory Management ............................................................................................................ 16 2.4.7 Quality Management ............................................................................................................... 17 2.4.8 Global factors ........................................................................................................................... 17

3.0 Marketing .......................................................................................................................... 19 3.1 Role of Marketing ........................................................................................................................... 19

3.1.2 Interdependence with other key business functions ................................................................ 19 3.1.3 Production, Selling and Marketing Approaches ....................................................................... 20 3.1.4 Types of markets ...................................................................................................................... 20

3.2 Influences on Marketing ................................................................................................................. 21 3.2.1 Consumer Choice ...................................................................................................................... 21 3.2.2 Consumer Laws ......................................................................................................................... 21 3.2.3 Ethical Aspects .......................................................................................................................... 22

3.3 Marketing Processes ....................................................................................................................... 22 3.3.1 Situational analysis ................................................................................................................... 23 3.3.2 Market Research ...................................................................................................................... 24 3.3.3 Establishing Marketing Objectives ........................................................................................... 24 3.3.4 Identifying Target markets ....................................................................................................... 25 3.3.5 Developing Marketing Strategies ............................................................................................. 25 3.3.6 Implementation, Monitoring and Controlling .......................................................................... 25

3.4 Marketing Strategies ....................................................................................................................... 26 3.4.1 Market segmentation, Product/service differentiation and positioning .................................. 26 3.4.2 Product incl. branding and packaging ...................................................................................... 26 3.4.3 Price incl. methods, strategies and quality interaction ............................................................ 28 3.4.4 Promotion incl. mix and communication .................................................................................. 29 3.4.5 Place/ distribution incl. channels and choice plus physical distribution issues ........................ 30 5.4.6 People, processes and physical evidence.................................................................................. 31 5.4.7 E-marketing .............................................................................................................................. 31 3.4.8 Global marketing ...................................................................................................................... 32

3.5 Summary on Marketing .................................................................................................................. 35

SAMPLE


This book is subject to Copyright. No more than 10% is permitted to be photocopied. © Sharyn Owen 2016

v

4.0 Finance ............................................................................................................................... 36 4.1 Role of Financial Management ....................................................................................................... 36

4.1.1 Strategic Role............................................................................................................................ 36 4.1.2 Objectives of financial management ........................................................................................ 36 4.1.3 Interdependence with Other Key Business Functions ............................................................... 37

4.2 Influences on Financial Management ............................................................................................. 37 4.2.1 Internal sources of finance – retained profits........................................................................... 37 4.2.2 External sources of finance ....................................................................................................... 38 4.2.3 Influence of Government .......................................................................................................... 39 4.2.4 Global market influences .......................................................................................................... 40

4.3 Processes of Financial Management............................................................................................... 44 4.3.1 Planning and Implementing ..................................................................................................... 44 4.3.2 Monitoring and Controlling ...................................................................................................... 44 4.3.3 Financial Ratios ........................................................................................................................ 45 4.3.4 Limitations of Financial Reports ............................................................................................... 47 4.3.5 Ethical Issues ............................................................................................................................ 48

4.4 Financial Management Strategies................................................................................................... 48 4.4.1 Cash flow management ............................................................................................................ 48 4.4.2 Working Capital Management ................................................................................................. 48 4.4.3 Profitability Management ........................................................................................................ 50 4.4.4 Global Financial Management ................................................................................................. 51

5.0 Human Resources .............................................................................................................. 53 5.1 Role of Human Resource Management .......................................................................................... 53

5.1.1 Strategic Role of Human Resources .......................................................................................... 54 5.1.2 Interdependence with Other Key Business Functions ............................................................... 54 5.1.3 Outsourcing .............................................................................................................................. 54

5.2 Key Influences ................................................................................................................................. 55 5.2.1 Stakeholders ............................................................................................................................. 55 5.2.2 Legal, Economic, technological and social ............................................................................... 57 5.2.3 Ethics and CSR .......................................................................................................................... 57

5.3 Processes in Human Resource Management.................................................................................. 58 5.4 Strategies in Human Resource Management ................................................................................. 61

5.4.1 Leadership style ........................................................................................................................ 61 5.4.2 Job design ................................................................................................................................. 61 5.4.3 Recruitment .............................................................................................................................. 62 5.4.4 Training and development ....................................................................................................... 62 5.4.5 Performance management ...................................................................................................... 62 5.4.6 Rewards .................................................................................................................................... 63 5.4.7 Global ....................................................................................................................................... 64 5.4.8 Workplace disputes .................................................................................................................. 66 5.5 Effectiveness of Human Resource Management – The indicators of .......................................... 67

6.0 Bibliography....................................................................................................................... 69

Appendix 1 – Financial Ratios Formula for HSC Business Studies Students ......................... 71

Appendix 2 – Inditex income statement 2014 & 2015 .......................................................... 72

Appendix 3 – Inditex balance sheets 2015 & 2016 ................................................................ 73

Appendix 4 – Inditex Cash Flow Statements 2014 & 2015 .................................................... 74

Appendix 5 – Taxation and Inditex ......................................................................................... 75



v

4.0 Finance ............................................................................................................................... 36 4.1 Role of Financial Management ....................................................................................................... 36

4.1.1 Strategic Role............................................................................................................................ 36 4.1.2 Objectives of financial management ........................................................................................ 36 4.1.3 Interdependence with Other Key Business Functions ............................................................... 37

4.2 Influences on Financial Management ............................................................................................. 37 4.2.1 Internal sources of finance – retained profits........................................................................... 37 4.2.2 External sources of finance ....................................................................................................... 38 4.2.3 Influence of Government .......................................................................................................... 39 4.2.4 Global market influences .......................................................................................................... 40

4.3 Processes of Financial Management............................................................................................... 44 4.3.1 Planning and Implementing ..................................................................................................... 44 4.3.2 Monitoring and Controlling ...................................................................................................... 44 4.3.3 Financial Ratios ........................................................................................................................ 45 4.3.4 Limitations of Financial Reports ............................................................................................... 47 4.3.5 Ethical Issues ............................................................................................................................ 48

4.4 Financial Management Strategies................................................................................................... 48 4.4.1 Cash flow management ............................................................................................................ 48 4.4.2 Working Capital Management ................................................................................................. 48 4.4.3 Profitability Management ........................................................................................................ 50 4.4.4 Global Financial Management ................................................................................................. 51

5.0 Human Resources .............................................................................................................. 53 5.1 Role of Human Resource Management .......................................................................................... 53

5.1.1 Strategic Role of Human Resources .......................................................................................... 54 5.1.2 Interdependence with Other Key Business Functions ............................................................... 54 5.1.3 Outsourcing .............................................................................................................................. 54

5.2 Key Influences ................................................................................................................................. 55 5.2.1 Stakeholders ............................................................................................................................. 55 5.2.2 Legal, Economic, technological and social ............................................................................... 57 5.2.3 Ethics and CSR .......................................................................................................................... 57

5.3 Processes in Human Resource Management.................................................................................. 58 5.4 Strategies in Human Resource Management ................................................................................. 61

5.4.1 Leadership style ........................................................................................................................ 61 5.4.2 Job design ................................................................................................................................. 61 5.4.3 Recruitment .............................................................................................................................. 62 5.4.4 Training and development ....................................................................................................... 62 5.4.5 Performance management ...................................................................................................... 62 5.4.6 Rewards .................................................................................................................................... 63 5.4.7 Global ....................................................................................................................................... 64 5.4.8 Workplace disputes .................................................................................................................. 66 5.5 Effectiveness of Human Resource Management – The indicators of .......................................... 67

6.0 Bibliography....................................................................................................................... 69

Appendix 1 – Financial Ratios Formula for HSC Business Studies Students ......................... 71

Appendix 2 – Inditex income statement 2014 & 2015 .......................................................... 72

Appendix 3 – Inditex balance sheets 2015 & 2016 ................................................................ 73

Appendix 4 – Inditex Cash Flow Statements 2014 & 2015 .................................................... 74

Appendix 5 – Taxation and Inditex ......................................................................................... 75

SAMPLE


This book is subject to Copyright. No more than 10% is permitted to be photocopied. © Sharyn Owen 2016 vi

Appendix 6 – Inditex and IndustriALL special report ............................................................. 77

Appendix 7 – Teacher Answers for financial ratios ............................................................... 84

Appendix 8 – Teacher Notes Generally .................................................................................. 85

Glossary of Key Terms ............................................................................................................. 86

Worksheet 1.1 “Introduction to Zara” ................................................................................... 89

Worksheet 1.2 “History of Zara” ............................................................................................ 90

Worksheet 2.1 “CSR at Inditex/ Zara” .................................................................................... 91

Worksheet 2.2 “VIDYA Project” .............................................................................................. 92

Worksheet 2.3 “Operations Strategy at Zara” ....................................................................... 95

Worksheet 2.4 “Zara Operations” .......................................................................................... 98

Worksheet 3.1 “Marketing influences and Swot at Zara” ..................................................... 99

Worksheet 3.2 “Moving Forward Store Design at Zara” ..................................................... 101

Worksheet 4.1 “Inditex financial ratios” .............................................................................. 102

Worksheet 5.1 “Joint Turkey Programme” .......................................................................... 103


This book is subject to Copyright. No more than 10% is permitted to be photocopied. © Sharyn Owen 2016 vi

Appendix 6 – Inditex and IndustriALL special report ............................................................. 77

Appendix 7 – Teacher Answers for financial ratios ............................................................... 84

Appendix 8 – Teacher Notes Generally .................................................................................. 85

Glossary of Key Terms ............................................................................................................. 86

Worksheet 1.1 “Introduction to Zara” ................................................................................... 89

Worksheet 1.2 “History of Zara” ............................................................................................ 90

Worksheet 2.1 “CSR at Inditex/ Zara” .................................................................................... 91

Worksheet 2.2 “VIDYA Project” .............................................................................................. 92

Worksheet 2.3 “Operations Strategy at Zara” ....................................................................... 95

Worksheet 2.4 “Zara Operations” .......................................................................................... 98

Worksheet 3.1 “Marketing influences and Swot at Zara” ..................................................... 99

Worksheet 3.2 “Moving Forward Store Design at Zara” ..................................................... 101

Worksheet 4.1 “Inditex financial ratios” .............................................................................. 102

Worksheet 5.1 “Joint Turkey Programme” .......................................................................... 103

SAMPLE



1

1.0 INTRODUCTION Zara is one of the world’s biggest fashion brands; but it’s not just fashion, it’s fast fashion. It has made one of its founders the 2nd wealthiest man in the world.1 From humble beginnings in 1963 (with the first Zara store in 1975), its founders, Amancia Ortego and Rosalía Mera, have grown their company into a multi-million dollar global empire. To this day, Amancia has had a close association with the business and was, until recently, the chairman for Inditex owning 60% of the company’s shares. His daughter, Marta, is assumed to be his successor. The parent company for Zara is called Industria de Diseño Textil, S.A. (Inditex) and is registered in Spain. It is a global conglomerate with over 7,000 stores spanning 91 countries. The diagram below shows the basic corporate structure for this business.

Zara entered the Australian retailing space in 2011 with their first store on Pitt St Mall in Sydney. They now have 12 stores across the eastern states.

Business Model “Inditex’s 2015 results demonstrate the strength of our business model which focuses on offering products that our customers want. Our sales and net profit increased by 15%, with growth across all geographic regions.” Pablo Isla, Chairman. (Inditex 2015) Inditex’s website shows an interactive version of the following diagram to demonstrate their Flexible business model on which the business relies and accredits for its success.

1 Forbes, 2016, “Amancia Ortego”, 15 September 2016, information found through Wikipedia on 30 September 2016

Inditex

ZaraZara HomeBershkaOthers incl. -Pull & Bear

-Mussimo Dutti

Tempe50%

Zara – A Business Case Study © Five Senses Education

Zara – A Business Case StudyZara Business Case Study


1

1.0 INTRODUCTION Zara is one of the world’s biggest fashion brands; but it’s not just fashion, it’s fast fashion. It has made one of its founders the 2nd wealthiest man in the world.1 From humble beginnings in 1963 (with the first Zara store in 1975), its founders, Amancia Ortego and Rosalía Mera, have grown their company into a multi-million dollar global empire. To this day, Amancia has had a close association with the business and was, until recently, the chairman for Inditex owning 60% of the company’s shares. His daughter, Marta, is assumed to be his successor. The parent company for Zara is called Industria de Diseño Textil, S.A. (Inditex) and is registered in Spain. It is a global conglomerate with over 7,000 stores spanning 91 countries. The diagram below shows the basic corporate structure for this business.

Zara entered the Australian retailing space in 2011 with their first store on Pitt St Mall in Sydney. They now have 12 stores across the eastern states.

Business Model “Inditex’s 2015 results demonstrate the strength of our business model which focuses on offering products that our customers want. Our sales and net profit increased by 15%, with growth across all geographic regions.” Pablo Isla, Chairman. (Inditex 2015) Inditex’s website shows an interactive version of the following diagram to demonstrate their Flexible business model on which the business relies and accredits for its success.

1 Forbes, 2016, “Amancia Ortego”, 15 September 2016, information found through Wikipedia on 30 September 2016

Inditex

Zara Zara Home BershkaOthers incl. - Pull & Bear

- Mussimo Dutti

Tempe50%


Zara – A Business Case Study

SAMPLE


This book is subject to Copyright. No more than 10% is permitted to be photocopied. © Sharyn Owen 2016 2

Along with maximising shareholder value through profitability growth, Inditex has a stong drive for social good. “The commitment to social progress and the endeavour for environmental sustainability forms the ethical principles held by all of us at Inditex. Based on these principles, we have championed and shared pioneering sustainable practices throughout our business operations, as well as with our partners and suppliers. More specifically, this year Inditex joined the effort to achieve the 17 Sustainable Development Goals (SDG) set by the United Nations in 2015 to combat climate change, poverty and inequality with concrete goals for 2030.” Inditex 2015 pg 8 Student Activities

1. Complete worksheet 1.1 “Introduction to Zara” 2. Complete worksheet 1.2 “History of Zara” 3. Become familiar with the range of Inditex brands and watch the Corporate Video

titled “Brands” at https://youtu.be/Ty0VweQRmns

Source: Inditex 5 October 2016




Along with maximising shareholder value through profitability growth, Inditex has a stong drive for social good. “The commitment to social progress and the endeavour for environmental sustainability forms the ethical principles held by all of us at Inditex. Based on these principles, we have championed and shared pioneering sustainable practices throughout our business operations, as well as with our partners and suppliers. More specifically, this year Inditex joined the effort to achieve the 17 Sustainable Development Goals (SDG) set by the United Nations in 2015 to combat climate change, poverty and inequality with concrete goals for 2030.” Inditex 2015 pg 8 Student Activities

1. Complete worksheet 1.1 “Introduction to Zara” 2. Complete worksheet 1.2 “History of Zara” 3. Become familiar with the range of Inditex brands and watch the Corporate Video

titled “Brands” at https://youtu.be/Ty0VweQRmns

Source: Inditex 5 October 2016



SAMPLE



3

2.0 OPERATIONS Investigate aspects of business using hypothetical situations and actual business case studies to: • describe the features of operations management for businesses in a tertiary industry • assess the relationship between operations and the other key business functions in

two actual businesses • explain how operations strategy can help a business sustain its competitive

advantage • recommend possible operations strategies for one hypothetical business Zara design all their own clothing and internally manufacture 50%. Additionally, they undertake the global distribution to their various stores. Their aim is to control the whole supply chain2 using their internally developed, state of the art logistics program. This means that all outsourced processing must go through their logistics hub in Spain before shipment to stores.

2.1 ROLE OF OPERATIONS MANAGEMENT 2.1.1 STRATEGIC ROLE OF OPERATIONS MANAGEMENT Strategic refers to the long term goals of any business. For Inditex and Zara this means continued success with new designs, a growing market share and improving profits within a highly competitive fast fashion market. Zara does not aim to be the cheapest product in the marketplace but they still demonstrate cost leadership. The have developed their own logistics system that rivals all others in terms of speed. Another goal is quality, which the business believes differentiates them from their competitors. Finally, their fashion items are being designed continuously so that their products are up-to-the-minute for fashion lovers who want to be on trend. 2.1.2 GOODS AND/OR SERVICES Zara essentially offers up-to-the-minute fashions (a tangible good). However, their customer service through their retailers is important. When marketing is considered, their customer service represents an important market research tool for the designers to use when putting together new products that are “on trend”. 2.1.3 INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS In the HSC Business Studies program students study four key business functions. Operations is one of these, and like all businesses, it cannot operate in isolation. The following diagram explains the interdependence of the operations function for Zara.

2 Inditex, 2014 “Annual Report” page 109




3

2.0 OPERATIONS Investigate aspects of business using hypothetical situations and actual business case studies to: • describe the features of operations management for businesses in a tertiary industry • assess the relationship between operations and the other key business functions in

two actual businesses • explain how operations strategy can help a business sustain its competitive

advantage • recommend possible operations strategies for one hypothetical business Zara design all their own clothing and internally manufacture 50%. Additionally, they undertake the global distribution to their various stores. Their aim is to control the whole supply chain2 using their internally developed, state of the art logistics program. This means that all outsourced processing must go through their logistics hub in Spain before shipment to stores.

2.1 ROLE OF OPERATIONS MANAGEMENT 2.1.1 STRATEGIC ROLE OF OPERATIONS MANAGEMENT Strategic refers to the long term goals of any business. For Inditex and Zara this means continued success with new designs, a growing market share and improving profits within a highly competitive fast fashion market. Zara does not aim to be the cheapest product in the marketplace but they still demonstrate cost leadership. The have developed their own logistics system that rivals all others in terms of speed. Another goal is quality, which the business believes differentiates them from their competitors. Finally, their fashion items are being designed continuously so that their products are up-to-the-minute for fashion lovers who want to be on trend. 2.1.2 GOODS AND/OR SERVICES Zara essentially offers up-to-the-minute fashions (a tangible good). However, their customer service through their retailers is important. When marketing is considered, their customer service represents an important market research tool for the designers to use when putting together new products that are “on trend”. 2.1.3 INTERDEPENDENCE WITH OTHER KEY BUSINESS FUNCTIONS In the HSC Business Studies program students study four key business functions. Operations is one of these, and like all businesses, it cannot operate in isolation. The following diagram explains the interdependence of the operations function for Zara.

2 Inditex, 2014 “Annual Report” page 109



SAMPLE



2.2 INFLUENCES ON OPERATIONS 2.2.1 GENERAL INFLUENCES Globalisation Most of Zara’s manufacturing is undertaken in company owned factories close to their head office in Spain and Portugal. With a globalised market, Zara now uses outsourced factories in many low cost nations. The company has suppliers in Turkey and Morocco. Only long shelf life items, like T-shirts, are outsourced to low cost manufacturers in Asia. The development of fast cargo transport by air, has allowed Zara to open stores in many previously unexplored locations for European fashion houses. Zara, through their central distribution hub, are able to fly inventory to Asia and place this stock in store within 2 days. This speed allows Zara to offer the same product in all stores around the world. Technology Within the manufacturing process, Zara are able to utilise many existing technologies as well as develop their own leading edge logistics system. This will be discussed further in the Operations Strategies section. Quality Zara’s goal is not to be the cheapest product on the market but rather a quality product at affordable prices. Therefore, this business would like to think that it practices Total Quality Management (TQM) through training of their employees throughout the value chain, including their outsourced manufacturing sites. Their customers are interested in clothing articles that are not “too cheap” and last more than a couple of washes in the machine.

Operations•Manufacture goods to

be distruted and sole to customer

Finance•Provide operating and

financing budgets•Pay Staff•Pay Suppliers

Marketing•Provide market

research information concerning designs and customer "wants"

Human Resources•Hire staff for all aspects

of this process•Manage the

compliance issues with outsourced manufacturers

•Provides traing for staff




2.2 INFLUENCES ON OPERATIONS 2.2.1 GENERAL INFLUENCES Globalisation Most of Zara’s manufacturing is undertaken in company owned factories close to their head office in Spain and Portugal. With a globalised market, Zara now uses outsourced factories in many low cost nations. The company has suppliers in Turkey and Morocco. Only long shelf life items, like T-shirts, are outsourced to low cost manufacturers in Asia. The development of fast cargo transport by air, has allowed Zara to open stores in many previously unexplored locations for European fashion houses. Zara, through their central distribution hub, are able to fly inventory to Asia and place this stock in store within 2 days. This speed allows Zara to offer the same product in all stores around the world. Technology Within the manufacturing process, Zara are able to utilise many existing technologies as well as develop their own leading edge logistics system. This will be discussed further in the Operations Strategies section. Quality Zara’s goal is not to be the cheapest product on the market but rather a quality product at affordable prices. Therefore, this business would like to think that it practices Total Quality Management (TQM) through training of their employees throughout the value chain, including their outsourced manufacturing sites. Their customers are interested in clothing articles that are not “too cheap” and last more than a couple of washes in the machine.

Operations•Manufacture goods to

be distruted and sole to customer

Finance•Provide operating and

financing budgets•Pay Staff•Pay Suppliers

Marketing•Provide market

research information concerning designs and customer "wants"

Human Resources•Hire staff for all aspects

of this process•Manage the

compliance issues with outsourced manufacturers

•Provides traing for staff



SAMPLE



5

Government and Legal Zara need to be aware of the trading barriers in each country before shipping their product, as well as the local legal requirements. The main legal requirement for Zara is environmental emissions standards and differing labour laws. Both of these are discussed later. As Zara is a fashion follower, not a fashion leader, they are often sued for copying the design of the prestigious fashion houses. This is a big issue in Europe which generates most of the company’s sales and is the home of the big name fashion brands. The US market is more lenient with copyright infringements of this nature and the Asian market cares even less. (Freitas 2016) 2.2.2 CORPORATE SOCIAL RESPONSIBILITY (CSR)

“This commitment to social progress and the endeavour for environmental sustainability forms the ethical principles held by all of us at Inditex. Based on these principles, we have championed and shared pioneering sustainable practices throughout our business operations, as well as with our partners and suppliers.” Pablo Isla, Chairman. (Inditex 2015) A cornerstone strategy for Inditex is CSR as outlined in their Code of Conduct. This Code is designed to cover the environmental and social concerns across every aspect of the business. This extract (right) from the 2014 Inditex Annual Report, demonstrates the commitment of this business to listen to customer concerns and consider the treatment of the workers along their supply chain.



ANNUAL REPORT 2015Inditex’s sustained growth is

driven by a team of over 150,000 people worldwide who know that

the Group’s progress has to go hand in hand with social progress and environmental sustainability

ANNUAL REPORT 2015

Actively and passively listening to customers' desires and concerns is not only limited to fashion. Of course, new trends are the main concern of people who shop with us regularly, but that is not their only concern. Our customers are people committed to society and to the community in which they live and this forces us to reinvent ourselves every day in order to keep up with their needs and priorities at all times. For this, team work is key as it allows us to react quickly and globally to suggestions made by customers.

Transparency and traceability: ‘Fabricado no Brasil'

As discussed in the section on Traceability of the supply chain, one of Inditex's priorities is to have control from beginning to end of the goods supply chain, from the origin of raw materials to the final product in store. This exhaustive understanding of all the processes which make up the origin of each garment is also something our customers are increasingly requesting. In response to this growing social awareness, in 2014 Inditex created a pilot project in Brazil. Fabricado no Brasil is the name of the project under which all products manufactured and sold in this market will include a QR code, allowing customers to discover the product's manufacturing details, including the manufacturer's identity. In addition to details about the manufacturer, it will also include information on the most recent control audit on its compliance with the Inditex Code of Conduct that the manufacturer has passed. The label will also include direct access via e mail, allowing the customer to send questions or comments to the CSR department in Brazil.

In this way, Inditex guarantees its customers that all the products it sells have been manufactured in adequate conditions, respecting Brazilian labour laws and the principles established in Inditex's Code of Conduct.

This new label is currently being implemented in Brazil and by the end of 2015 will be included on all products manufactured in the country.

Immediate response to requests

During 2014, an excellent example of the importance Inditex places on the opinions and concerns of its customers was the immediate removal from sale of a t-shirt from the Zara Kids 2014 Fall-Winter collection. This striped garment, with a Sheriff's star (in reference to Wild West films) was removed from sale in over 50 countries in a matter of hours after customer services teams received complaints from clients in different countries who considered the garment inappropriate. Inditex apologized immediately to all the customers and groups that felt upset and, in a few minutes, it totally withdrew from sale the t-shirt from both at its brick-and-mortar stores and online. Furthermore, the Group explained that respect is one of its guiding principles, since it is made up of people from 83 nationalities with different cultures and religions. This is one of its main assets. Those customers who contacted Inditex regarding this case received a personal response, as is always. The customer is always at the centre of our business model.

‘FABRICADO NO BRASIL’ IS A PILOT PROjECT WHICH ALLOWS CUSTOMERS TO DISCOVER

DETAILS ABOUT THE MANUFACTURER IN STORE VIA A QR CODE ON THE LABEL

109

our priorities | innovation in customer services



5

Government and Legal Zara need to be aware of the trading barriers in each country before shipping their product, as well as the local legal requirements. The main legal requirement for Zara is environmental emissions standards and differing labour laws. Both of these are discussed later. As Zara is a fashion follower, not a fashion leader, they are often sued for copying the design of the prestigious fashion houses. This is a big issue in Europe which generates most of the company’s sales and is the home of the big name fashion brands. The US market is more lenient with copyright infringements of this nature and the Asian market cares even less. (Freitas 2016) 2.2.2 CORPORATE SOCIAL RESPONSIBILITY (CSR)

“This commitment to social progress and the endeavour for environmental sustainability forms the ethical principles held by all of us at Inditex. Based on these principles, we have championed and shared pioneering sustainable practices throughout our business operations, as well as with our partners and suppliers.” Pablo Isla, Chairman. (Inditex 2015) A cornerstone strategy for Inditex is CSR as outlined in their Code of Conduct. This Code is designed to cover the environmental and social concerns across every aspect of the business. This extract (right) from the 2014 Inditex Annual Report, demonstrates the commitment of this business to listen to customer concerns and consider the treatment of the workers along their supply chain.



ANNUAL REPORT 2015 Inditex’s sustained growth is

driven by a team of over 150,000 people worldwide who know that

the Group’s progress has to go hand in hand with social progress and environmental sustainability

ANNU

AL R

EPOR

T 20

15

Actively and passively listening to customers' desires and concerns is not only limited to fashion. Of course, new trends are the main concern of people who shop with us regularly, but that is not their only concern. Our customers are people committed to society and to the community in which they live and this forces us to reinvent ourselves every day in order to keep up with their needs and priorities at all times. For this, team work is key as it allows us to react quickly and globally to suggestions made by customers.

Transparency and traceability: ‘Fabricado no Brasil'

As discussed in the section on Traceability of the supply chain, one of Inditex's priorities is to have control from beginning to end of the goods supply chain, from the origin of raw materials to the final product in store. This exhaustive understanding of all the processes which make up the origin of each garment is also something our customers are increasingly requesting. In response to this growing social awareness, in 2014 Inditex created a pilot project in Brazil. Fabricado no Brasil is the name of the project under which all products manufactured and sold in this market will include a QR code, allowing customers to discover the product's manufacturing details, including the manufacturer's identity. In addition to details about the manufacturer, it will also include information on the most recent control audit on its compliance with the Inditex Code of Conduct that the manufacturer has passed. The label will also include direct access via e mail, allowing the customer to send questions or comments to the CSR department in Brazil.

In this way, Inditex guarantees its customers that all the products it sells have been manufactured in adequate conditions, respecting Brazilian labour laws and the principles established in Inditex's Code of Conduct.

This new label is currently being implemented in Brazil and by the end of 2015 will be included on all products manufactured in the country.

Immediate response to requests

During 2014, an excellent example of the importance Inditex places on the opinions and concerns of its customers was the immediate removal from sale of a t-shirt from the Zara Kids 2014 Fall-Winter collection. This striped garment, with a Sheriff's star (in reference to Wild West films) was removed from sale in over 50 countries in a matter of hours after customer services teams received complaints from clients in different countries who considered the garment inappropriate. Inditex apologized immediately to all the customers and groups that felt upset and, in a few minutes, it totally withdrew from sale the t-shirt from both at its brick-and-mortar stores and online. Furthermore, the Group explained that respect is one of its guiding principles, since it is made up of people from 83 nationalities with different cultures and religions. This is one of its main assets. Those customers who contacted Inditex regarding this case received a personal response, as is always. The customer is always at the centre of our business model.

‘FABRICADO NO BRASIL’ IS A PILOT PROjECT WHICH ALLOWS CUSTOMERS TO DISCOVER

DETAILS ABOUT THE MANUFACTURER IN STORE VIA A QR CODE ON THE LABEL

109

our priorities | innovation in customer services

SAMPLE



101

Page 1/1

WORKSHEET 3.2 “MOVING FORWARD STORE DESIGN AT ZARA” Zara are changing the shopper’s experience at their stores. They are introducing a number of new concepts:

1. Closing the Loop (involves a NGO called Water Action Plan and recycling); 2. Self-service checkout; and 3. Interactive change rooms.

Do some independent or group research to find out what each of these programs involve. From a CSR perspective it would be good to investigate “Closing the Loop) based on the amount of waste the fashion industry produces each year. Report back to your class and what you have learnt. The world’s largest apparel retailer wants to close the loop on fashion. Cribbing a page fromH&M’s playbook, Inditex is teaming up with Lenzing, the Austrian textile manufacturer behind plant-based manmade fabrics such as Tencel, to commit to the “circular economy” model in all phases of its production. Speaking at the Spanish firm’s annual general meeting on Tuesday, Pablo Isla, Inditex’s chairman and chief executive, outlined several new initiatives as part of the company’s 2016-2020 Environmental Strategy Plan. Among them is the development of Inditex’s collection, reuse, and recycling program for end-of-life garments. Come September, Zara, Inditex’s flagship brand, will pilot a free clothing-collection scheme for online deliveries in Madrid, with an eye on an eventual Spain-wide rollout.

Source: Ecouterre 20 July 2016, Retrieved 27 October 2016

4.

Valuable References: Inditex - https://www.inditex.com/en/our-commitment-to-the-environment Inditex Annual Report 2015 – pg 58, 68, 155 www.wateractionplan.com




101

Page 1/1

WORKSHEET 3.2 “MOVING FORWARD STORE DESIGN AT ZARA” Zara are changing the shopper’s experience at their stores. They are introducing a number of new concepts:

1. Closing the Loop (involves a NGO called Water Action Plan and recycling); 2. Self-service checkout; and 3. Interactive change rooms.

Do some independent or group research to find out what each of these programs involve. From a CSR perspective it would be good to investigate “Closing the Loop) based on the amount of waste the fashion industry produces each year. Report back to your class and what you have learnt. The world’s largest apparel retailer wants to close the loop on fashion. Cribbing a page fromH&M’s playbook, Inditex is teaming up with Lenzing, the Austrian textile manufacturer behind plant-based manmade fabrics such as Tencel, to commit to the “circular economy” model in all phases of its production. Speaking at the Spanish firm’s annual general meeting on Tuesday, Pablo Isla, Inditex’s chairman and chief executive, outlined several new initiatives as part of the company’s 2016-2020 Environmental Strategy Plan. Among them is the development of Inditex’s collection, reuse, and recycling program for end-of-life garments. Come September, Zara, Inditex’s flagship brand, will pilot a free clothing-collection scheme for online deliveries in Madrid, with an eye on an eventual Spain-wide rollout.

Source: Ecouterre 20 July 2016, Retrieved 27 October 2016

4.

Valuable References: Inditex - https://www.inditex.com/en/our-commitment-to-the-environment Inditex Annual Report 2015 – pg 58, 68, 155 www.wateractionplan.com



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